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COMPANY PROFILE -Agricultural Bank of China

Business Sector :Banking and Financial Services

Operating Geography :Asia, China

About Agricultural Bank of China :

Agricultural Bank of China (ABC), formerly known as Agricultural Cooperative Bank was founded on July 10, 1951 and is headquartered at Beijing, China. The Bank has evolved from a state-owned specialized bank to a wholly state-owned commercial bank and subsequently a state-controlled commercial bank. It deals with commercial banking and financial services. The ABC Bank launched its initial public offering on the Shanghai Stock Exchange and the Hong Kong Stock Exchange on July, 2010 and this signified its complete transformation into a public shareholding commercial bank. It was recognized as one of the Global Systemically Important Banks in 2014. It ranks No. 40 in Fortune’s Global 500, 2018 and ranked No.6 in the Banker’s Top 1000 World Banks list in terms of Tier 1 capital in 2018. It is the third largest bank in lending services as per the market value in China. Agricultural Bank of China employs 49, 1578 people as of 2018.

3. Advanced IT platform usage: The bank leveraged on IT platform to provide integrated services across different channels. Using IT, it established a real-time backup centre in Shanghai and a data centre in Beijing. IT operation and management system was set up for production, contingency or disastrous matters which also catered to the requirements of massive data management.

Weaknesses

1. Negligence to UN principles on human rights: As per the latest UN study, which assessed the progress of 32 of the world’s largest banks towards implementing the UN Guiding Principles on Business and Human Rights and bench marked each bank against a set of 12 criteria in four categories, that is policy commitment; due diligence commitment; reporting and access to remedy, for each criteria, Agricultural Bank of China scored overall 0 on a scale of 12 in all aspects. It requires disclosure of its services through proper channels to maintain its reputation in the long run.

2. High on non-performing loans and non-performing loans ratio: At the end of 2014, the balance of non-performing loans of the Bank was increased to RMB 124,970 million. The non-performing loan ratio increased by 0.32 percentage point to 1.54%.Non-performing loans showed an increase mostly in three industries: (1)wholesale and retail (by RMB19,155 million); (2) manufacturing (by RMB12,044 million); and (3) real estate (by RMB2,059 million).

3. Management Issues: Corruption issues at senior management level could weaken the company’s growth. It came into surface recently with the arrest of former senior executive of ABC, Mr Yang Kun. Yang is believed to have accepted bribe from a Beijing developer Blue Harbor in order to extend an enormous loan amount of 3 billion Yuan to the company since he became a deputy head of ABC in 2004.

Opportunity

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Threat

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The PESTLE Analysis for National Agricultural Bank of China is given below:

Detailed Pestle Analysis of Agricultural Bank of China

Political

1. Prudent policy approach by the government of China: To achieve stable growth in the country, the government of People’s Republic of China observed tightened monetary and rigorous fiscal policies. It further relaxed the limit of interest rates on the Remnibi deposits and lowered the deposit benchmark rate. This could lead to overall negative impact on the bank’s net interest margin. But this may be partially offset by the cut in the required reserve ratio by releasing capital into higher return investments.

Economic

1. Stable economy:The economic conditions are stable but there is a minor cut in the growth rate. GDP of China increased by 7.4% in 2014, which is a 0.3 percentage point decrease compared to the previous year. CPI showed a slight increase of 2% whereas PPI maintained steady growth in negative units. As a result, total investment in fixed assets decreased by 3.9 percentage points; consumer goods sales decreased by 1.1 percentage points ; net export also decreased by 1.7 percentage points. The sluggish economy with tighter government controls could lead to stable outlook for the ABC. The overall growth in profit for the ABC decelerated to 8% in 2014, down from 14.6% in 2013.

2. Focus shift from manufacturing to service industry: Chinese economy is experiencing a shift in focus from the manufacturing industry to service industry. New emerging industries have shown growth whereas the existing industries faced hindrances in their businesses. The overall economic quality shows improvement due to rise in productivity and lowered energy consumption per GDP unit. The bank could focus more on innovation in services to satisfy consumer demand. The ABC promoted the gradual transformation of traditional financial service to the e-banking services and achieved improved customer experience and satisfaction. Overall customer experience was further enhanced through other internet services like Weibo and WeChat.